Oil prices closed on a third straight weekly high on Friday as prices continued to rally on economies reopening from their COVID-19 lockdowns.
Brent was up at $32.50 on Friday’s trading, with West Texas Intermediate
(WTI) on $29.43, as both benchmarks kept up their sustained rallies on
positive market sentiment and hopes of oil prices having bottomed out
during the end of April, which saw WTI going negative.
“Oil prices extended their recovery for a third week running as
sentiment toward demand improves as more countries ease their lockdown
conditions and allow for economic life to return to something
approximating pre-coronavirus conditions,” said Edward Bell, commodity
analyst at Emirates NBD.
“For the month of May alone the improvement in oil futures has been
dramatic: Brent has gained nearly 30% while WTI is up by around 56%.
June WTI futures expire this week but the relative improvement in
sentiment toward crude and easing concerns over whether storage was
reaching tank tops should prevent a repeat of last month’s hysteria when
expiring futures moved into negative prices for the first time ever,”
he added.
Production Cuts Play Their Part
Also assisting with the continued price recovery have been the
production cuts that came into affect from the start of this month
according to Ole Hansen, head of commodity strategy at Saxo Bank, as the
worst case scenario of storage facilities reaching full oil capacity
having been averted for now.
“Crude oil continues to push higher and in hindsight the short-lived
collapse to a negative WTI price last month probably saved the market
and set in motion the recovery currently seen.
“Major producers around the world, potentially faced with heightened
risk of tank tops and the price collapse spreading, stepped up their
efforts to cut production. A development which together with a pick-up
in demand was highlighted by the International Energy Agency in their
latest oil market report as key reasons for the recovery seen during the
past month,” he added.
The IEA in their May outlook report revised their global demand
numbers, with demand set to go down by 8.6 million barrels per day (bpd)
this year, from an earlier estimate of 9.3 million bpd. “With estimates
that demand may not fully recover for at least another year, we suspect
that the current recovery may eventually run out of steam.
“Also considering the risk that U.S. shale oil producers, some
desperate to survive, will be able to restart shut-in production as the
price reaches economically viable levels above $30/b,” he added.
Markets Are Rebalancing
Speaking at Adnoc’s virtual majlis last week, Dr Sultan Ahmad Al
Jaber, UAE Minister of State and Group CEO of Adnoc, said signs were
pointing to an oil market that was rebalancing itself. “When it comes to
oil, there are signs that the market has tightened in recent weeks. The
Opec+ agreement, voluntary cuts outside Opec-plus plus, and production
shut-ins are working together to start to rebalance the market.
“This will take time. As economies begin to open up, demand will
follow, but the path to the next normal is not a straight line,” he
added. Al Jaber also highlighted how Adnoc was well positioned to handle
the current downward in prices thanks to its low cost production.
“Through our transformation, we have focused on what we can control
and that is our costs. We’ve been laser-focused on being one of the
lowest-cost producers in the world,” he said.
“This has given us the flexibility and the resilience that we need at
times like these. In this environment, we are continuing to work even
harder to preserve our resources, and maximise our profitability,” Al
Jaber added.
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